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Trendsetter Barometer® business outlook

Despite lowered expectations, private companies keep spending

Top findings from Q3 2016

“The economy is resilient enough — business as usual!” That’s how the president of a factory equipment manufacturer put it when we asked him to predict the ultimate impact of the elections. Like most private-company executives, he was taking the long view. So while the election season was the backdrop for our third-quarter survey, the year ahead was the focus of our questions to Trendsetter companies.

Their answers are worth hearing. That’s because what private companies say about their plans and perspectives is a good indication of where the economy as a whole is going, particularly in terms of economic growth, hiring, and wages.

So what should we expect? Tempered payroll increases over the coming months, steady but unspectacular growth, and continued spending. Leave it to private companies to keep a measured outlook even in the headiest of times. No wonder they’re the backbone of the US economy.

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Trendsetter Barometer
Q3 2016 Report

PwC's Ken Esch, Private Company Services Partner, discusses the Trendsetter Barometer survey and highlights key findings from US private companies in the third quarter of 2016. What we heard? Despite lowered expectations, private companies keep spending.

Economic sentiment

Optimism idles in neutral as uncertainty prevails

“I can’t see any changes happening to the overall economy.”CFO, Educational software company

Trendsetter sentiment about the direction of the US economy is a good leading indicator of US GDP growth a year down the line. In this case, no news is good news:

Private-company economic optimism has stopped nosediving, hovering around 40%, after plunging from 71% in the second half of last year.

The prevailing sentiment, however, is uncertainty.

Roughly half of Trendsetter executives have been ambivalent about the US economy for three consecutive quarters, which is a record high — one witnessed against the backdrop of what’s arguably the most tumultuous political season in living memory.

Corporate performance

Still set to outperform US GDP, but with less gusto

“Despite a sluggish US economy, we have managed to grow our company through innovative approaches.”President & CEO, Distribution and inventory management company

Private companies project revenue growth of 5.4% for the next 12 months.

While that’s more than three times the US GDP growth forecast for 2016, it’s markedly less than the 8.7% these companies were forecasting for themselves a year ago.

This is the slowest growth rate they’ve projected since mid-2009.

Meanwhile, at 14%, the number of private companies expecting double-digit growth is the lowest we’ve seen in the decade we’ve been tracking this data point.

That said, most private companies (83%) do expect growth of some kind.

Nearly just as many (81%) expect the same for their industry — it’s only the sixth time since the recession that this figure has cleared 80%.

Opportunities and barriers

As concern about demand fades, more companies open their wallets

“More capital spending is what drives the industry for us.”President/CFO, Vendor management, payroll services, and staffing company

Three-quarters of private companies are ramping up operational spending, suggesting that their feelings about the economy might not be as lukewarm as all that.

This is the second highest percentage reporting planned spending increases since the recession.

It coincides with a marked drop in the number of Trendsetter businesses worrying about demand (nearly always their top perceived growth barrier), which is at a pre-recession low.

Inorganic growth, however, is getting the short shrift, with only 7% of Trendsetter companies planning to spend more on acquisitions — or planning acquisitions period — for the next 12 months: an all-time low.

The top area pegged for more operational spending is new products and services.

The number of Trendsetter companies intending to make major capital investments also rose slightly, with 28% eyeing new capex over the next 12 months.

Hiring

On the horizon: Lower increases in headcount and wages

“Finding talented people is of the greatest importance.”COO, IT projects company

Trendsetter hiring plans for the next 12 months tend to be a one-year leading indicator of changes in US payrolls.

What have their plans been indicating lately?

Fewer businesses will be adding employees in 2017.

Another leading indicator by one year is the average wage hike that Trendsetter companies plan to give workers over the next 12 months.

This has fallen to 2%, the lowest expected increase we’ve seen in nearly six years.

One year ago that indicator had broken above the psychologically significant 3% mark for the first time after the recession.

The good news?

The earlier projected wage increase is happening at many businesses (and not just privately held ones) now that we’ve jumped 12 months forward.

But workers might want to go ahead and ask for that raise soon, in case bosses are less generous a year from now, as the Trendsetter tea leaves suggest.

International expansion

Commitment remains strong in current markets

“We’ve seen continued growth in China and Vietnam, and there are potential opportunities for expansion in Asia and the Far East. The US will remain stagnant with limited growth.”CFO, Logistics and transportation company

While few private companies say they’ll expand sales operations into new foreign markets over the next year, they have no intention of scaling back in their established markets abroad.

Nearly one-third of Trendsetter companies plan to increase their spending on geographic expansion during the next 12 months.

And they’re earmarking funds for other growth-focused activities, too, such as R&D and new product introductions.

This is especially true of companies selling in the emerging markets of China, India, and/or Brazil, where they derive 35% of their total revenue.